Question 1

Which of the following ideas is the most plausible?

Accepted Answer

A) Reducing a high tax rate is less likely to increase tax revenue than is reducing a low tax rate. 
B) Reducing a high tax rate is more likely to increase tax revenue than is reducing a low tax rate. 
C) Reducing a high tax rate will have the same effect on tax revenue as reducing a low tax rate. 
D) Reducing a tax rate can never increase tax revenue. 
A) Reducing a high tax rate is less likely to increase tax revenue than is reducing a low tax rate. 
B) Reducing a high tax rate is more likely to increase tax revenue than is reducing a low tax rate. 
C) Reducing a high tax rate will have the same effect on tax revenue as reducing a low tax rate. 
D) Reducing a tax rate can never increase tax revenue.

Question 2

Figure 8-2
The vertical distance between points A and B represents a tax in the market.  
-Refer to Figure 8-2. The amount of the tax on each unit of the good is

Accepted Answer

A) $1. 
B) $4. 
C) $5. 
D) $9. 
A) $1. 
B) $4. 
C) $5. 
D) $9.

Question 3

Which of the following tools help us evaluate how taxes affect economic well-being? (i)
Consumer surplus
(ii)
Producer surplus
(iii)
Tax revenue
(iv)
Deadweight loss

Accepted Answer

A) (i) and (ii) only 
B) (i), (ii), and (iii) only 
C) (iii) and (iv) only 
D) (i), (ii), (iii), and (iv) 
A) (i) and (ii) only 
B) (i), (ii), and (iii) only 
C) (iii) and (iv) only 
D) (i), (ii), (iii), and (iv)

Question 4

The loss in total surplus resulting from a tax is called

Accepted Answer

A) a deficit. 
B) economic loss. 
C) deadweight loss. 
D) inefficiency. 
A) a deficit. 
B) economic loss. 
C) deadweight loss. 
D) inefficiency.

Question 5

The deadweight loss from a $3 tax will be largest in a market with

Accepted Answer

A) inelastic supply and elastic demand. 
B) inelastic supply and inelastic demand. 
C) elastic supply and elastic demand. 
D) elastic supply and inelastic demand. 
A) inelastic supply and elastic demand. 
B) inelastic supply and inelastic demand. 
C) elastic supply and elastic demand. 
D) elastic supply and inelastic demand.

Question 6

Figure 8-10  
-Refer to Figure 8-10. Suppose the government imposes a tax that reduces the quantity sold in the market after the tax to Q2. With the tax, the producer surplus is

Accepted Answer

A) (P5-0) x Q5. 
B) x (P5-0) x Q5. 
C) (P8-0) x Q2. 
D) x (P8-0) x Q2. 
A) (P5-0) x Q5. 
B) x (P5-0) x Q5. 
C) (P8-0) x Q2. 
D) x (P8-0) x Q2.

Question 7

Which of the following scenarios is not consistent with the Laffer curve?

Accepted Answer

A) The tax rate is very low, and tax revenue is very low. 
B) The tax rate is very high, and tax revenue is very low. 
C) The tax rate is very high, and tax revenue is very high. 
D) The tax rate is moderate (between very high and very low), and tax revenue is relatively high. 
A) The tax rate is very low, and tax revenue is very low. 
B) The tax rate is very high, and tax revenue is very low. 
C) The tax rate is very high, and tax revenue is very high. 
D) The tax rate is moderate (between very high and very low), and tax revenue is relatively high.

Question 8

Economists use the government's tax revenue to measure the public benefit from a tax.

Accepted Answer

A) True 
 B)False

Question 9

Suppose that instead of a supply-demand diagram, you are given the following information:
Qs = 100 + 3P
Qd = 400 - 2P
From this information compute equilibrium price and quantity. Now suppose that a tax is placed on buyers so that
Qd = 400 - 2(P + T).If T = 15, solve for the new equilibrium price and quantity. (Note: P is the price received by sellers and P + T is the price paid by buyers.) Compare these answers for equilibrium price and quantity with your first answers. What does this show you?

Accepted Answer

Prior to the tax, the equilibrium price

Question 10

Figure 8-7
The vertical distance between points A and B represents a tax in the market.  
-Refer to Figure 8-7. As a result of the tax, buyers effectively pay

Accepted Answer

A) $16 for each unit of the good, and sellers effectively receive $12 for each unit of the good. 
B) $16 for each unit of the good, and sellers effectively receive $8 for each unit of the good. 
C) $12 for each unit of the good, and sellers effectively receive $8 for each unit of the good. 
D) $14 for each unit of the good, and sellers effectively receive $10 for each unit of the good. 
A) $16 for each unit of the good, and sellers effectively receive $12 for each unit of the good. 
B) $16 for each unit of the good, and sellers effectively receive $8 for each unit of the good. 
C) $12 for each unit of the good, and sellers effectively receive $8 for each unit of the good. 
D) $14 for each unit of the good, and sellers effectively receive $10 for each unit of the good.

Question 11

Figure 8-9
The vertical distance between points A and C represent a tax in the market.  
-Refer to Figure 8-9. The amount of tax revenue received by the government is

Accepted Answer

A) $4,000. 
B) $6,000. 
C) $10,000. 
D) $24,000. 
A) $4,000. 
B) $6,000. 
C) $10,000. 
D) $24,000.

Question 12

Figure 8-12  
-Refer to Figure 8-12. Which of the following combinations will maximize the deadweight loss from a tax?

Accepted Answer

A) supply 1 and demand 1 
B) supply 2 and demand 2 
C) supply 1 and demand 2 
D) supply 2 and demand 1 
A) supply 1 and demand 1 
B) supply 2 and demand 2 
C) supply 1 and demand 2 
D) supply 2 and demand 1

Question 13

Scenario 8-2
Tom mows Stephanie's lawn for $25. Tom's opportunity cost of mowing Stephanie's lawn is $20, and Stephanie's willingness to pay Tom to mow her lawn is $28.
-Refer to Scenario 8-2. If Stephanie hires Tom to mow her lawn, Tom's producer surplus is

Accepted Answer

A) $2. 
B) $3. 
C) $5. 
D) $25. 
A) $2. 
B) $3. 
C) $5. 
D) $25.

Question 14

Figure 8-3
The vertical distance between points A and C represents a tax in the market.  
-Refer to Figure 8-3. The price that buyers effectively pay after the tax is imposed is

Accepted Answer

A) P1. 
B) P2. 
C) P3. 
D) P4. 
A) P1. 
B) P2. 
C) P3. 
D) P4.

Question 15

In the market for widgets, the supply curve is the typical upward-sloping straight line, and the demand curve is the typical downward-sloping straight line. The equilibrium quantity in the market for widgets is 200 per month when there is no tax. Then a tax of $5 per widget is imposed. The price paid by buyers increases by $2 and the after-tax price received by sellers falls by $3. The government is able to raise $750 per month in revenue from the tax. The deadweight loss from the tax is

Accepted Answer

A) $250. 
B) $125. 
C) $75. 
D) $50. 
A) $250. 
B) $125. 
C) $75. 
D) $50.

Question 16

If a tax shifts the demand curve downward (or to the left), we can infer that the tax was levied on

Accepted Answer

A) buyers of the good. 
B) sellers of the good. 
C) both buyers and sellers of the good. 
D) We cannot infer anything because the shift described is not consistent with a tax. 
A) buyers of the good. 
B) sellers of the good. 
C) both buyers and sellers of the good. 
D) We cannot infer anything because the shift described is not consistent with a tax.

Question 17

Which of the following quantities decrease in response to a tax on a good?

Accepted Answer

A) the equilibrium quantity in the market for the good, the effective price of the good paid by buyers, and consumer surplus 
B) the equilibrium quantity in the market for the good, producer surplus, and the well-being of buyers of the good 
C) the effective price received by sellers of the good, the wedge between the effective price paid by buyers and the effective price received by sellers, and consumer surplus 
D) None of the above is necessarily correct unless we know whether the tax is levied on buyers or on sellers. 
A) the equilibrium quantity in the market for the good, the effective price of the good paid by buyers, and consumer surplus 
B) the equilibrium quantity in the market for the good, producer surplus, and the well-being of buyers of the good 
C) the effective price received by sellers of the good, the wedge between the effective price paid by buyers and the effective price received by sellers, and consumer surplus 
D) None of the above is necessarily correct unless we know whether the tax is levied on buyers or on sellers.

Question 18

Figure 8-17
The vertical distance between points A and B represents the original tax.  
-Refer to Figure 8-17. If the government changed the per-unit tax from $5.00 to $7.50, then the price paid by buyers would be $10.50, the price received by sellers would be $3, and the quantity sold in the market would be 0.5 units. Compared to the original tax rate, this higher tax rate would

Accepted Answer

A) increase government revenue and increase the deadweight loss from the tax. 
B) increase government revenue and decrease the deadweight loss from the tax. 
C) decrease government revenue and increase the deadweight loss from the tax. 
D) decrease government revenue and decrease the deadweight loss from the tax. 
A) increase government revenue and increase the deadweight loss from the tax. 
B) increase government revenue and decrease the deadweight loss from the tax. 
C) decrease government revenue and increase the deadweight loss from the tax. 
D) decrease government revenue and decrease the deadweight loss from the tax.

Question 19

A tax on insulin is likely to cause a very large deadweight loss to society.

Accepted Answer

A) True 
 B)False

Question 20

For the purpose of analyzing the gains and losses from a tax on a good, we use tax revenue as a direct measure of the

Accepted Answer

A) government's benefit from the tax. 
B) government's loss from the tax. 
C) deadweight loss of the tax. 
D) overall net gain to society of the tax. 
A) government's benefit from the tax. 
B) government's loss from the tax. 
C) deadweight loss of the tax. 
D) overall net gain to society of the tax.

Which of the following ideas is the most plausible?

Figure 8-2 The vertical distance between points A and B represents a tax in the market. -Refer to Figure 8-2. The amount of the tax on each unit of the good is

Which of the following tools help us evaluate how taxes affect economic well-being? (i) Consumer surplus (ii) Producer surplus (iii) Tax revenue (iv) Deadweight loss

The loss in total surplus resulting from a tax is called

The deadweight loss from a $3 tax will be largest in a market with

Figure 8-10 -Refer to Figure 8-10. Suppose the government imposes a tax that reduces the quantity sold in the market after the tax to Q2. With the tax, the producer surplus is

Which of the following scenarios is not consistent with the Laffer curve?

Economists use the government's tax revenue to measure the public benefit from a tax.

Figure 8-7 The vertical distance between points A and B represents a tax in the market. -Refer to Figure 8-7. As a result of the tax, buyers effectively pay

Figure 8-9 The vertical distance between points A and C represent a tax in the market. -Refer to Figure 8-9. The amount of tax revenue received by the government is

Figure 8-12 -Refer to Figure 8-12. Which of the following combinations will maximize the deadweight loss from a tax?

Scenario 8-2 Tom mows Stephanie's lawn for $25. Tom's opportunity cost of mowing Stephanie's lawn is $20, and Stephanie's willingness to pay Tom to mow her lawn is $28. -Refer to Scenario 8-2. If Stephanie hires Tom to mow her lawn, Tom's producer surplus is

Figure 8-3 The vertical distance between points A and C represents a tax in the market. -Refer to Figure 8-3. The price that buyers effectively pay after the tax is imposed is

If a tax shifts the demand curve downward (or to the left), we can infer that the tax was levied on

Which of the following quantities decrease in response to a tax on a good?

A tax on insulin is likely to cause a very large deadweight loss to society.

For the purpose of analyzing the gains and losses from a tax on a good, we use tax revenue as a direct measure of the

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Elasticity and Its Application

Supply, Demand, and Government Policies

Consumers, Producers, and the Efficiency of Markets

Application: International Trade

Measuring a Nations Income

Measuring the Cost of Living

Production and Growth

Saving, Investment, and the Financial System

The Basic Tools of Finance

Unemployment

The Monetary System

Money Growth and Inflation

Open-Economy Macroeconomic Models

A Macroeconomic Theory of the Open Economy

Aggregate Demand and Aggregate Supply

The Influence of Monetary and Fiscal Policy on Aggregate Demand

The Short-Run Trade-Off Between Inflation and Unemployment

Six Debates Over Macroeconomic Policy

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Exam 8: Application: The Costs of Taxation

Which of the following ideas is the most plausible?

Figure 8-2 The vertical distance between points A and B represents a tax in the market. -Refer to Figure 8-2. The amount of the tax on each unit of the good is

Which of the following tools help us evaluate how taxes affect economic well-being? (i) Consumer surplus (ii) Producer surplus (iii) Tax revenue (iv) Deadweight loss

The loss in total surplus resulting from a tax is called

The deadweight loss from a $3 tax will be largest in a market with

Figure 8-10 -Refer to Figure 8-10. Suppose the government imposes a tax that reduces the quantity sold in the market after the tax to Q2. With the tax, the producer surplus is

Which of the following scenarios is not consistent with the Laffer curve?

Economists use the government's tax revenue to measure the public benefit from a tax.

Figure 8-7 The vertical distance between points A and B represents a tax in the market. -Refer to Figure 8-7. As a result of the tax, buyers effectively pay

Figure 8-9 The vertical distance between points A and C represent a tax in the market. -Refer to Figure 8-9. The amount of tax revenue received by the government is

Figure 8-12 -Refer to Figure 8-12. Which of the following combinations will maximize the deadweight loss from a tax?

Scenario 8-2 Tom mows Stephanie's lawn for $25. Tom's opportunity cost of mowing Stephanie's lawn is $20, and Stephanie's willingness to pay Tom to mow her lawn is $28. -Refer to Scenario 8-2. If Stephanie hires Tom to mow her lawn, Tom's producer surplus is

Figure 8-3 The vertical distance between points A and C represents a tax in the market. -Refer to Figure 8-3. The price that buyers effectively pay after the tax is imposed is

If a tax shifts the demand curve downward (or to the left), we can infer that the tax was levied on

Which of the following quantities decrease in response to a tax on a good?

A tax on insulin is likely to cause a very large deadweight loss to society.

For the purpose of analyzing the gains and losses from a tax on a good, we use tax revenue as a direct measure of the

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Elasticity and Its Application

Supply, Demand, and Government Policies

Consumers, Producers, and the Efficiency of Markets

Application: International Trade

Measuring a Nations Income

Measuring the Cost of Living

Production and Growth

Saving, Investment, and the Financial System

The Basic Tools of Finance

Unemployment

The Monetary System

Money Growth and Inflation

Open-Economy Macroeconomic Models

A Macroeconomic Theory of the Open Economy

Aggregate Demand and Aggregate Supply

The Influence of Monetary and Fiscal Policy on Aggregate Demand

The Short-Run Trade-Off Between Inflation and Unemployment

Six Debates Over Macroeconomic Policy

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